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Is the grand Crypto Rally of 2023 to 2024 coming to a close? That’s a plausible thought this week, given the noticeable descent in the prices of both leading cryptocurrencies and altcoins.
Even some of the once-prominent and upward-trending altcoins faced a setback. Cardano $ADA experienced a 9% drop, as reported by figures from the crypto-exchange operator Coinbase. According to S&P Global Market Intelligence data, counterparts Arbitrum $ARB and Ethereum Classic $ETC suffered more substantial declines, plummeting by 18% and 15%, respectively.
The buzz surrounding spot crypto ETFs has waned
While the adage “buy the rumor, sell the news” doesn’t always hold true in the world of investments, it undeniably influenced the decline of Cardano and its counterparts this week. Towards the end of last year, excitement grew around spot cryptocurrency exchange-traded funds (ETFs), reaching its peak when the Securities and Exchange Commission (SEC) approved a total of 13 of them for trading last week.
Why was the market so captivated by these seemingly mundane assets? Despite their unassuming name, spot crypto ETFs represent a significant development in crypto investing. Prior to their introduction, the most effective way to hold digital coins and tokens was through direct ownership.
Traditional investments like stocks were much simpler to buy, sell, and hold—all an investor needed was a brokerage account. With this, transactions could occur almost instantly, with the broker acting as a custodian for their assets.
However, cryptocurrencies presented a different challenge. Direct ownership meant setting up digital wallets, requiring careful maintenance. Instances of investors with substantial holdings forgetting wallet passwords, unable to recover them, became a nightmare scenario—being locked out of assets worth thousands, millions, or even billions.
Spot crypto ETFs, currently holding only Bitcoin, are streamlined instruments where the ETF manager is responsible for direct ownership of the coins or tokens. The onus of managing digital wallets falls on the company, not the investor. The latter simply purchases the ETF as a security traded on an exchange, similar to an index fund or stock.
A momentary pause in the market
This pattern is familiar—we witness excitement building around a new product or service in the investing scene, and once it arrives, the market shifts its focus. The escalating enthusiasm over spot crypto ETFs wasn’t the sole factor propelling the rise of Bitcoin and altcoins; an improving economic climate and the promise of Federal Reserve key interest-rate cuts also played significant roles.
Now that spot crypto ETFs are a reality and there’s no major, sharply favorable economic news, it appears investors are cashing in on some coin and token holdings. The market is taking a breather, and for many participants, this seems to be an opportune time to do so.
Crypto industry insiders express concern over the stringent anti-money laundering rules recently agreed upon by European Union policymakers.
While the objective is to create a level playing field between crypto firms and banks, some argue that the new rules are more restrictive for digital asset firms.
The regulations include robust customer verification requirements and measures to address risks related to self-hosted wallets and cross-border transfers.
Despite efforts to keep non-fungible tokens (NFTs) and decentralized finance (DeFi) out of the regulatory scope, the finalized Anti-Money Laundering Regulation (AMLR) may still impact the crypto sector. While the regulatory package is not yet final, concerns linger about potential restrictions on privacy-enhancing tools.
The crypto industry continues to navigate discussions, anticipating technical talks on the AMLR details to commence soon.
The ratio of ether to bitcoin has seen a 19% increase in the initial three weeks of this year, reclaiming a portion of the 25% decline witnessed in the previous year.
Ethereum’s native token, Ether ($ETH), faced challenges in outperforming bitcoin ($BTC) throughout 2023, primarily due to the latter’s emerging narratives around smart contracts, non-fungible tokens (NFTs), and the optimism surrounding spot-based ETFs. Analysts anticipate renewed interest in Ether in 2024, considering Ethereum’s prominent position as the leading smart contract blockchain with upcoming key upgrades, making Ether a potential candidate for a spot-based ETF in the U.S.
Coinbase, a Nasdaq-listed crypto exchange, expressed optimism about Ether’s prospects, especially in light of last week’s bitcoin ETF developments that also benefitted Ethereum. Coinbase highlighted that several firms, including BlackRock and VanEck, behind bitcoin ETFs are planning spot-based ETFs for Ether. Spot ETFs, investing in actual cryptocurrencies, are deemed superior to futures-based ETFs, making them attractive to both institutional and retail investors.
With nearly a dozen bitcoin spot ETFs recently launched in the U.S., accumulating a cumulative volume exceeding $10 billion, institutional and retail interest in spot-based ETFs is on the rise. Ethereum’s forthcoming Dencun upgrade, aimed at enhancing scalability through the introduction of “data blobs,” is expected to further captivate investor interest. The upgrade, currently on Ethereum’s Goerli testnet, will streamline transaction data memory, reducing congestion and network fees.
ETC Group, an institutional crypto firm, shared a bullish outlook on the ether-bitcoin ratio, emphasizing Ethereum’s dominance in decentralized applications, NFTs, and tokenized assets. Despite Bitcoin’s network activity surge in 2023, Ethereum’s role in the crypto space remains unrivaled. Ether investors can earn additional returns by staking or locking their coins, with an annualized reward rate around 3.84%. Ethereum’s practice of burning a portion of transaction fees has a deflationary impact on the token’s supply, which is seen positively by investors.
ETC Group predicts a reversal in the relative performance of ETH/BTC in 2024, highlighting Ethereum’s historical tendency to mean revert. Ether has demonstrated outperformance against bitcoin this year, with the ETH/BTC ratio trading 10% higher, a notable shift from the over 25% decline witnessed in the previous year.
BlackRock’s iShares Bitcoin Trust (IBIT), a spot Bitcoin exchange-traded fund (ETF), has achieved a remarkable feat by surpassing $1 billion in assets under management (AUM) within its inaugural week of trading. This milestone establishes IBIT as the first among the recently launched Bitcoin ETFs to reach such a significant AUM.
Commencing trading on January 12, 2024, the iShares Bitcoin Trust has swiftly garnered attention from investors looking for a regulated and transparent avenue to gain exposure to Bitcoin. The majority of IBIT’s holdings, constituting 99% of its portfolio, are in Bitcoin, with a small allocation of fiat currency, currently valued at almost $60,000. As of Thursday, the fund held 25,067 Bitcoin.
Robert Mitchnick, Head of Digital Assets at BlackRock, expressed enthusiasm, stating, “We are excited to see IBIT reach this milestone in its first week, reflecting strong investor demand. This is just the beginning. We have a long-term commitment focused on providing investors access to an iShares quality ETF.”
Closing Wednesday’s trading session at $24.41, the iShares Bitcoin Trust trades at a slight premium of 0.42% compared to the spot price of Bitcoin. Since its launch, the fund has recorded an average daily trading volume of 14 million shares, signaling robust market interest.
Ethereum (ETH) has experienced a nearly 10% drop from its recent peak, prompting a significant investor, known as a whale, to seize the opportunity and purchase the dip. This whale withdrew 3,600 ETH, valued at $8.9 million, from Binance.
While the broader cryptocurrency market, including the leading asset Bitcoin, faces challenges in January, certain strategic investors, or whales, are leveraging the market downturn to accumulate digital assets at a discounted rate.
The Ethereum whale in question has re-entered accumulation mode. Last Friday, the wallet address ‘0x347’ withdrew 3,600 ETH from Binance, as revealed by a screenshot from Spotonchain. The historical data indicates that this whale has a pattern of accumulating Ethereum during market lows and selling the asset near its peak.
Notably, this whale had been accumulating Ethereum during the market lows of 2023 before the price began its upward trajectory. According to Spotonchain, they withdrew a substantial 42,800 ETH from Binance, with an average cost of $1,834, between May 8, 2023, and August 24, 2023. Despite the market rally in the last quarter of 2023, the whale distributed their assets. However, on Friday, they resumed buying Ethereum.
The whale currently holds an impressive 31,700 ETH, valued at nearly $78 million. Having already realized profits of $17.25 million, they still have an unrealized profit of $16.403 million.
In the realm of Ethereum, strong staking activities are underway. Despite the setback from the US Securities and Exchange Commission’s (SEC) delay in deciding on Fidelity’s spot Ethereum ETF application, there is heightened interest after the approval of the spot Bitcoin ETF on January 10. Although there has been a slight decline in the smart money wallet’s ETH holdings in the past seven days, according to Nansen analyst Martin Lee, it may not necessarily signify a trend of smart money selling their ETH.
Ethereum staking has reached a new all-time high, with 24% of the total supply staked, indicating a significant attraction for staking activities. Additionally, major Ethereum network upgrades are anticipated in the first quarter of 2024. Recently, the Ethereum core developers deployed the Dencun upgrade on the Goerli testnet, which, when implemented on the mainnet, will facilitate temporary storage and access of off-chain data by Ethereum nodes, aiming to address storage demands.
In the legal battleground of cryptocurrency regulation, Judge Katherine Polk Failla of the Federal Southern District of New York presided over a five-hour hearing that holds the potential to shape the regulatory destiny of the $1.7 trillion cryptocurrency industry.
Coinbase, the largest U.S. crypto exchange, sought dismissal of an SEC lawsuit asserting that it operated as an “unregistered broker-dealer” in trading unregistered digital assets, violating securities laws.
The SEC, acting as Wall Street’s watchdog, urged Failla to deny Coinbase’s motion, contending that the exchange blatantly violated securities laws. The agency advocated an immediate commencement of discovery for an upcoming trial. Legal experts predict Failla could take two to six weeks to make a decision, and the outcome might establish a critical precedent in U.S. crypto regulation.
If the court rules in favor of Coinbase, it could impede SEC Chair Gary Gensler’s efforts to regulate the crypto industry through enforcement actions. Gensler, since assuming the chairmanship, has initiated over fifty crypto enforcement actions for various rule violations. An SEC victory, however, would empower Gensler to continue his regulatory agenda.
The lawsuit alleges that Coinbase functioned as an unregistered broker, exchange, and clearing agency, offering thirteen tokens deemed “securities” by the SEC, necessitating registration akin to stocks or bonds. Coinbase counters that no tokens on its platform qualify as securities due to the absence of an underlying investment contract between token issuers and buyers in the secondary market.
Gensler has consistently argued that, except for Bitcoin and possibly Ethereum, most digital assets constitute securities under the 1946 Howey Test. The crypto industry contends that the current SEC registration process does not accommodate the intricacies of blockchain technology, and it calls for jurisdiction to be given to the Commodity Futures Trading Commission.
Failla expressed concerns about the SEC’s broad interpretation of what constitutes a security, emphasizing the importance of the case’s implications for future legal developments.
The debate extends beyond the courtroom, involving Congress and other legal cases. Recent rulings, such as U.S. Southern District Judge Torres’s decision on £XRP, highlight that while digital assets themselves may not be securities, their transactional nature could subject them to SEC oversight.
The ongoing regulatory discourse has caught the attention of Congress, with GOP Senator Cynthia Lummis advocating for the dismissal of the Coinbase suit. Lummis argues that such enforcement actions hinder the development of blockchain, the transformative technology underpinning crypto, and criticizes the SEC for overstepping its authority.
As the legal drama unfolds, Congress remains actively involved, with lawmakers seeking to establish regulatory rules for the evolving landscape of cryptocurrency.
Justin Sun, the creator of the Tron blockchain, has challenged the findings of a UN report regarding USDT, citing factual inconsistencies. The UN report raised concerns about the misuse of blockchain technology, with a focus on USDT’s role in money laundering and scams in Southeast Asia.
In a recent post, Sun acknowledged these concerns but disputed specific details related to USDT transactions on Tron’s TRC-20 protocol. He underscored Tron’s commitment to preventing blockchain misuse while pointing out inaccuracies in the UN’s report.
The UN report highlighted the growing use of Tether’s USDT in illicit activities, particularly on online gambling platforms in Southeast Asia. Tether responded by emphasizing its crucial role in developing economies, highlighting its transparency commitment, and asserting that USDT is less likely to be used for illegal operations. Tether also emphasized its efforts to combat misuse, citing a November incident where it assisted the U.S. Department of Justice in freezing $225 million in USDT linked to a human trafficking group.
The report detailed successful law enforcement operations against money laundering networks using Tether, including a major operation in Singapore last August that recovered around $735 million in cash and cryptocurrencies. Tron’s statement, following Sun’s remarks, highlighted its role in circulating USDT through the TRC-20 protocol and its global market presence. The network emphasized its partnerships with on-chain forensic experts to monitor transactions, reiterating its inability to directly regulate third-party actions, including those of Tether.
Sun, drawing on his diplomatic experience, stressed the importance of blockchain technology in global cooperation and advocated for increased blockchain education. He suggested potential collaboration between Tron, HTX DAO, and the UN to enhance the global reach of blockchain technology. Tether had previously expressed disappointment with the UN report, arguing that the focus on USDT’s alleged involvement in illicit activities ignored its role in helping developing economies and facilitating financial inclusion.
The cryptocurrency market, known for its unpredictable nature, now faces a fresh hurdle: soaring staking inflation rates.
This issue is particularly noticeable in numerous Proof-of-Stake (PoS) altcoins, sparking concerns regarding the long-term sustainability and value of these digital assets.
Altcoins Displaying Elevated Staking Inflation Rates
An example of this predicament is Sui, exhibiting a substantial inflation rate of 36.85% and a staking market cap of $10.54 billion. While the reward rate stands at a modest 4.56%, the risk to the coin’s value stability is evident.
Similarly, Evmos, flaunting an extensive staking market cap of $25.82 million, grapples with a 24.19% inflation rate. Despite an impressive staking reward rate of 34.13%, the implications of such inflation rates cannot be dismissed.
Sentinel, Umee, and Comdex, although smaller in market cap, also contend with inflation rates exceeding 20%. Clearly, the figures illustrate a market segment under stress, where the potential devaluation of these digital currencies overshadows the traditional appeal of high-staking rewards.
How Staking Inflation Affects Cryptocurrencies
In the cryptocurrency realm, inflation operates similarly to traditional economic inflation. Essentially, an uptick in the circulating supply of an altcoin can decrease its individual value, assuming demand remains constant. This inflation represents a dilution of value for investors and holders of these altcoins. As more tokens circulate, the proportion of the total supply held by each investor diminishes unless they continuously engage in staking.
Moreover, the inclination to sell staking rewards for immediate gains exerts selling pressure in the market, potentially driving prices down. While elevated staking rewards may initially lure investors seeking profitable yields, the sustainability of such a strategy is dubious. Consequently, excessive inflation has the potential to undermine investor confidence, resulting in decreased demand and subsequent price declines.
For example, due to high inflation, Axie Infinity’s Smooth Love Potion (SLP) remains 98% below its all-time high. The token has struggled to recover significantly despite the broader crypto market rally since the last quarter of 2023.
Inflation’s impact also extends to network security in Proof-of-Stake systems. While high rewards can incentivize increased participation in network validation, overly high inflation rates may discourage long-term holding, potentially reducing active involvement in network validation.
The issue of inflation holds particular significance in the cryptocurrency market due to its implications for centralization. If inflation disproportionately benefits larger stakeholders, the decentralized essence of these digital currencies is jeopardized, with power possibly consolidating in the hands of a select few.
While elevated staking inflation rates may not spell immediate doom for altcoins like Sui, Evmos, Sentinel, Umee, and Comdex, they undoubtedly present substantial challenges.
According to recent data from the Shibburn crypto wallet tracker, the Shiba Inu community has seen a significant reduction in meme coin disposals over the past week. However, a noteworthy negative trend has emerged in this metric during this period.
Meanwhile, the SHIB price has experienced a modest recovery following Thursday’s price drop and then it has dipped again on Friday.
Over 100 million Shiba Inu burned, but with a caveat The tracking platform mentioned earlier revealed that in the past week, the Shiba Inu community successfully burned a total of 136,004,861 SHIB. However, the weekly burn rate has seen a substantial decline, plummeting by 98.56% compared to the previous week when nearly 10 billion SHIB were sent to unspendable wallets and permanently locked away.
The Shiba Inu development team burned 9.5 billion SHIB by transferring another portion of SHIB, converted from Shibarium gas fees to BONE, into a non-retrievable wallet. This marked the fourth significant burn executed by the Shiba Inu team, following their plan outlined by lead developer Shytoshi Kusama. In November and December, they burned a cumulative total of slightly over 36 billion SHIB.
Shibarium activity remains subdued; here’s what’s happening The Shibariumscan explorer indicates an abnormal decline in activity. Since the final days of December and 2023, the daily transfer count on the layer-2 blockchain has steadily decreased from 7.52 million on Dec. 29 to a low of 1.16 million on Jan. 13.
While this metric has slightly increased recently, maintaining a level above two million transactions for the past five days, the total transfer count on the network stands at 294,766,260, with 1,342,313 connected wallets. In December, Shibarium witnessed tens of millions of daily transactions, but the current on-chain activity is subdued.
Lucie, the official marketing lead of the Shiba Inu team, tweeted yesterday that developers are actively implementing various upgrades and introducing new developments to Shibarium. She cautioned that users may encounter some issues, emphasizing that “larger changes require additional time and thorough testing.”
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